On-Line Bar Review

MCLE:

DebtKollect

Intellectual Property

REPUBLIC OF THE
PHILIPPINES,REPRESENTED BY THE
SOCIAL SECURITY SYSTEM,
Petitioner,

G.R.
No.
155634August 16, 2004

-versus-

JERRY V. DAVID,
Respondent.

D E C I S I O N

PANGANIBAN,
J.:chanroblesvirtuallawlibrary

Under the terms of the
subject contract, “actual possession” cannot be equated with “actual
occupancy.”
Inasmuch as the housing unit was physically occupied by parties other
than
those intended to be benefited by the housing program of the Social
Security
System, there was a clear violation of the Contract. Since
respondent
did not comply with his obligations, rescission is proper.

The Case

Before us is a petition
for review[1]
under Rule 45 of the Rules of Court, assailing the October 9, 2002
decision[2]
of the Court of Appeals (CA) in CA-GR CV No. 61374. The appellate
court disposed as follows:chanrobles virtual law library

“WHEREFORE,
the instant appeal is DENIED for lack of merit. The decision of
the
Regional Trial Court, Quezon City, Branch 105, in Civil Case No.
Q-96-27031
is hereby AFFIRMED.”[3]

The Facts

The CA narrated the
facts thus:chanroblesvirtuallawlibrary

“x
x x (Respondent) Jerry V. David is an employee of the
SSS, formerly assigned at its Membership (Backroom) Department.
Pursuant
to its Employees’ Housing Loan Program, SSS awarded David a house and
lot
located at North Fairview, Quezon City. A Deed of Conditional
Sale
over the subject property was thereafter executed between the parties.cralaw

“On reports that numerous
violations have been committed by some of the housing awardees in
connection
with the conditions governing their sales, SSS conducted an
investigation
on the matter. The investigation revealed that in the case of
[Respondent]
David, he committed two (2) violations of his deed of conditional sale,
to wit: (1) neither the [respondent] nor his immediate family resided
and/or
occupied the said housing unit, and (2) he allowed a certain
Buenaventura
Penus to possess and occupy the property.cralaw

“As a consequence of
these violations, SSS sent a letter to David formally revoking,
terminating
and/or rescinding the deed of conditional sale. However, the
latter
refused to vacate and surrender possession of the subject property,
prompting
SSS to institute a complaint with the Quezon City RTC on March 28, 1996
revoking the deed of conditional sale and likewise praying for the
issuance
of a writ of possession in its favor.cralaw

“During the pre-trial
of the case, the court observed that while the complaint was captioned
‘Petition for Recovery of Possession with [P]rayer for Issuance of a
Writ
of Possession,’ an examination of its body shows that the prayer was
actually
for the rescission of the deed of conditional sale. For this
reason,
the court ordered the amendment of the complaint and in compliance
thereto,
[petitioner] submitted its amended complaint on March 19, 1997.chanrobles virtual law library

“[Respondent] David
denied the alleged violations of the deed of conditional sale, stating
that Buenaventura Penus, alluded to by the [petitioner] as
possessor-occupant
of the subject property, was in fact a caretaker until and after the
necessary
renovations and modifications on the house were made.cralaw

“In a decision dated
July 1, 1998, the court a quo dismissed the complaint and adjudged the
[petitioner] liable for costs. The dispositive portion of the
trial
court’s decision reads:chanrobles virtual law library

‘WHEREFORE,
in the light of the foregoing, the Amended Complaint is dismissed, with
costs against the plaintiff.

‘SO ORDERED.’

“In dismissing the
complaint,
the court ruled that the [petitioner] failed to prove that the
[respondent]
purchased the subject property for the use and benefit of another
undisclosed
party and not for his exclusive use, or that the defendant sold,
assigned,
encumbered, mortgaged, leased, subleased or in any manner altered or
disposed
of the subject property or his rights thereto at any other time.
In arriving at its [D]ecision, the lower court considered the testimony
of the [respondent] that when the subject property was delivered to him
on October 23, 1992, the unit was not habitable so he had to make a few
constructions thereon. He secured the services of his cousin,
Buenaventura
Penus, to be the caretaker while construction on the house was going
on.
With this, the court concluded that possession, as a condition of the
deed
of sale between the parties, was sufficiently satisfied.

“Aggrieved, [Petitioner]
SSS brought [an] appeal [to the CA], arguing that the court a quo erred
in holding that [respondent] did not violate the terms and conditions
of
the Deed of Conditional Sale and in consequently dismissing the case.”[4]chanrobles virtual law library

Ruling of
the
Court of Appeals

Affirming the trial
court, the CA ruled that while other persons had been found occupying
the
subject property, no proof was adduced by petitioner to prove that they
had taken possession of it on their own behalf and not merely as
respondent’s
caretakers. The appellate court added that because of the squalid
condition of the property when it was delivered, respondent had to make
improvements thereon as well as ask Penus, and later on Oden Domingo,
to
stay there as caretakers.cralaw

Through his caretakers,
respondent was deemed to have occupied and possessed the property as
required
by the Deed of Sale between him and petitioner. The CA concluded
that the property had clearly been subject to respondent’s will, a fact
equivalent to possession under Article 531[5]
of the Civil Code.cralaw

In its Memorandum, petitioner
raises this sole issue: “whether the Court of Appeals committed
reversible
error in affirming the Decision of the trial court holding that
respondent
did not violate the terms and conditions of the Deed of Conditional
Sale.”[7]

The Court’s Ruling

The Petition is meritorious.cralaw

Sole Issue:
Violation of the Terms and Conditions of the Deed of Conditional Sale

Petitioner avers that
respondent violated the terms and conditions of the Deed of Conditional
Sale, when he failed to “actually occupy and possess the property at
all
times”[8]
and allowed other persons to do so.[9]chanrobles virtual law library

It argues that contrary
to the rulings of the trial and the appellate courts, the Deed of
Conditional
Sale required “actual physical possession at all times,” not just
simple
possession. It contends that the material occupation of the
property
by other persons ran counter to the objective of the Social Security
System
(SSS) housing program to restrict the use and enjoyment of the housing
units to SSS employees and their immediate families only.cralaw

Petitioner likewise
submits that the appellate court erred in believing the claim of
respondent
that the house was uninhabitable when it was delivered to him in
1992.
His claim was belied by his acceptance of the property without protest,
as well as by the fact that his alleged caretakers had lived there from
1992 to 1996. Petitioner adds that he should have used his
available
money to improve the property, if the unit was indeed unlivable,
instead
of fully settling in advance in December 1992 the unpaid balance of its
purchase price.chanrobles virtual law library

Propriety of Review

At the outset, the Court
stresses that a question of law has arisen from petitioner’s contention
that simple possession under Article 531 of the Civil Code is not the
same
as “actual occupancy and possession at all times,” as required of
respondent
under the Deed. Such question -- of what law, rule or principle
is
to govern a given state of facts -- is decidedly one of law.[10]
It may be raised in this appeal by certiorari under Rule 45 of the
Rules
of Court.cralaw

Rules of Contract
Interpretation

Certain rules of contract
interpretation come to mind at this point. First, in construing a
contract, it is a fundamental task to ascertain the intention of the
contracting
parties.[11]
As a rule, such intention is determined by looking at the words used --
at all the words rather than at a particular word or two; and at words
in context rather than just words standing alone.[12]

Indeed, under Article
1374 of the Civil Code, “the various stipulations of a contract shall
be
interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.” Second, the
ascertained
intention of the parties is deemed an integral part of the contract, as
though it has been originally expressed in unequivocal terms.[13]
And third, the reasonableness of the result obtained, after analysis
and
construction of a contract, must also be carefully considered.[14]chanrobles virtual law library

The conditions that
were allegedly violated by respondent are contained in paragraph 10 of
the Deed of Conditional Sale, as follows:chanrobles virtual law library

“10. The
Contract
shall further [provide] the following terms and conditions:chanroblesvirtuallawlibrary

(a) The
VENDEE
is making this purchase for his/her own exclusive use and benefit and
not
for the use and benefit of another undisclosed party/parties;

(b) The
purpose
of the sale shall be to aid the VENDEE in acquiring a house and lot for
himself/herself and/or his/her immediate family, and not to provide
him/her
with a means for speculation or profit by a future assignment of
his/her
right herein acquired or the resale of the PROPERTY subject of this
Contract.
Therefore, the VENDEE, within the first FIVE (5) years of the existence
of this contract agrees not to sell, assign, encumber, mortgage, lease,
sub-let or in any manner alter or dispose of the property subject
hereof,
or his rights thereto, at any time, in whole or in part. After
the
FIVE (5) year period, VENDEE shall have the right to the full disposal
of the property, provided that, VENDEE has been able to fully pay all
of
his/her obligations herein. However, the foregoing
notwithstanding,
the VENDEE may x x x at any time with prior consent of the VENDOR
transfer
his right to the PROPERTY to any eligible employee of the VENDOR,
subject,
however, to the right of first refusal by the VENDOR who may refund to
the VENDEE all of his/her installment payments and the value of
substantial
improvements introduced by him/her if any, as appraised by the VENDOR;

(c) The
VENDEE,
and his heirs and/or successors, shall actually occupy and be in
possession
of the PROPERTY at all times;

(d) The
VENDEE
shall not obstruct or interfere in any manner whatsoever with the right
of the VENDOR or any of its duly authorized representatives to inspect,
survey, repair, lay water pipes, gas, electric and telephone lines or
other
works of similar purposes;chanrobles virtual law library

(e) The
VENDEE
shall abide by and comply with the Vendor’s Occupancy Rules and
Regulations
the terms and conditions of which are made an integral part hereof by
reference,
as well as that issued by any other governmental authority which may,
from
time to time, be promulgated in regard to the use and preservation of
the
house and lot;chanrobles virtual law library

(f) The
VENDEE
warrants in full the truth of the representation made in his/her
Application
For EMPLOYEE HOUSING LOAN, the terms of which are likewise made an
integral
part hereof by reference.cralaw

“The violation of
any
of the conditions herein stipulated shall be considered as a breach of
this Contract, and shall subject the VENDEE to the penalties provided
for
in paragraphs (11) and (12) hereof, including administrative sanctions,
when warranted, in the event x x x the VENDEE has been found to have
committed
a misrepresentation/falsification in his/her application for an
Employee
Housing Loan.”[15]chanrobles virtual law library

Actual Occupancy
and Possession at All Times

Plainly, the primary
intention behind the above-quoted stipulations is to restrict the sale,
the use and the benefit of the housing units to SSS employees and their
immediate families only. This objective is in line with that of
the
SSS housing loan program -- to aid its employees in acquiring their own
dwelling units at a low cost.[16]
Such intent, draws life also from the social justice policy of RA 1161,
as amended, otherwise known as the “Social Security System Law”
granting
direct housing loans to covered employees and giving priority to
low-income
groups.[17]

Indeed, the above goal
is confirmed by the requirement that respondent-vendee and his heirs or
assigns must actually occupy and possess the property at all times; by
the proscription that he must not sell, assign, encumber, mortgage,
lease,
sublet or in any manner alter or dispose of the property for the first
five
(5) years; and by the further proviso that he may alienate or transfer
his rights thereto at any time prior to full payment, but only to
petitioner
under its right of first refusal or to any other eligible SSS
employee.
These restrictive covenants are undeniably valid under Article 1306[18]
of the Civil
Code.cralaw

The use of the conjunctive
and in subparagraph (c) is not by any chance a surplusage.
Neither
is it meant to be without any legal signification. Its use is
confirmatory
of the restrictive intent that the houses provided by petitioner should
be for the exclusive use and benefit of the SSS employee-beneficiary.cralaw

It is easily discernible,
therefore, that both “actual occupancy” and “possession at all times”
--
not just one or the other -- were imposed as conditions upon
respondent.
The word and -- whether it is used to connect words, phrases or full
sentences
-- must be accepted in its common and usual meaning as “binding
together
and as relating to one another.”[19]
And implies a conjunction, joinder or union.[20]chanrobles virtual law library

Thus, respondent had
to comply with not one, but two, concurring conditions -- actual
occupancy
and possession at all times. The question is, did he?

We rule that he did
not.cralaw

No Actual Occupancy

First, actual possession
is not the same as actual occupancy. Hence, it was an error on
the
part of the lower courts to hold that the requirement of possession
alone
was a sufficient compliance with the conditions under subparagraphs (a)
and (c).chanrobles virtual law library

Under the law,[21]
“possession is acquired by the material occupation of a thing or the
exercise
of a right, or by the fact that it is subject to the action of our
will,
or by the proper acts and legal formalities established for acquiring
such
right.” As such, actual possession consists in the manifestation
of acts of dominion over property of such a nature as a party would
naturally
exercise over his own[22]
-- as when respondent himself is physically in occupation of the
property,
or even when another person who recognizes the former’s rights as owner
is in occupancy.[23]
In short, possession can be either “actual” or merely constructive.cralaw

On the other hand, actual
occupancy connotes “something real, or actually existing, as opposed to
something merely possible, or to something which is presumptive or
constructive.”[24]
Unlike possession, it can only be actual or real, not constructive.cralaw

Second, the uncontroverted
fact remains that it was not respondent and/or his immediate family,
but
Penus and his wife, who had lived in the property since 1992; and that
it was from Penus that Domingo took over possession in 1996.
Thus,
while it may be conceded that respondent “possessed” the property
through
his caretakers, there is no escaping the fact that he and/or his
immediate
family did not “actually occupy” it; and that he allowed other persons
to benefit from its use. In his letter to SSS Assistant
Administrator
Amador Monteiro on January 24, 1996,[25]
respondent admitted as much, but tried to justify his noncompliance by
saying that the property was not in a habitable condition at the time
of
delivery. This line of defense was sustained by the trial court
on
the ground of respondent’s allegedly “uncontroverted or unrebutted
evidence.”[26]chanrobles virtual law library

The RTC’s finding, however,
is neither borne out by the records nor by substantial evidence.
Hence, it constitutes an exception to the rule that this Court cannot
review
factual findings.[27]

Indeed, a thorough review
of the records reveals that the averments of respondent were ably
controverted
by denials made by petitioner. Negating his claim that the house
was located adjacent to a creek,[28]
it lengthily argued against it in the Memorandum it submitted to the
trial
court. Likewise, it must be stressed that under the Rules of
Court,[29]
the defense alleged in his Answer is deemed controverted, whether or
not
petitioner filed a reply.cralaw

Moreover, it is a basic
rule of evidence that the party asserting an affirmative allegation
must
prove it.[30]
However, all that there is to back up the defense of respondent in this
case is his self-serving testimony and that of his witness,
Domingo.
As to the latter’s testimony, it suffices to say that he could not have
affirmed the alleged condition of the unit in 1992, as he took
possession
of it only in 1996, four years after it had lain exposed to the
elements
with no improvements whatsoever.cralaw

For four years, respondent
likewise kept his silence about the purported condition of the
unit.
He accepted it without any whimper of protest on October 23, 1992, and
even paid the housing loan in full in December of the same year.
If it was indeed uninhabitable, he should have refused to accept it or
immediately protested its condition.cralaw

On the other hand, there
is enough documentary evidence to debunk his claim. The report of
petitioner’s Internal Audit Service[31]
significantly established that 509 of the 728 awardees -- presumably
situated
similarly as he was -- had occupied their units in compliance with the
assailed requirement. The Interview Slip[32]
submitted in evidence by petitioner also showed that Penus and his
wife,
and later Domingo, had lived in the unit since 1992. In the face
of these facts, it is difficult to believe the defense of
respondent.
For how could the units be habitable to many others, but not to him?

Likewise, this Court
takes judicial notice of the fact that low-cost houses such as those
offered
by petitioner[33]
are usually core or shell units without adequate divisions, ceilings,
cabinets,
paint and, in some cases, electrical connections -- features that have
to be installed, completed or refurbished by the awardees. The
idea,
of course, is to provide immediate but affordable living spaces that
they
can work at improving, according to their needs and finances and while
living therein. Certainly, at P172,978.85 (the cost of the house
and lot in this case), it is but fair to accept the lack of amenities.cralaw

Neither can respondent
assail the validity of the Contract as a one-sided “take it or leave
it”
agreement. To begin with, a contract of adhesion -- wherein one
party
imposes a ready-made form of contract on the other -- is not strictly
against
the law.[34]
The terms of the agreement cannot be modified, but can be freely
rejected
in its entirety, by the other party. On the other hand, the
latter’s
adherence thereto would mean consent.[35]
We need only to remind respondent that contractual obligations between
the parties have the force of law and must be complied with in good
faith.[36]

We therefore do not
see any reason to discuss respondent’s added arguments, other than to
say
that the objectives of low-cost housing -- mandated under the social
justice
provisions of the Constitution[37]
- are too important to be sidetracked by lame, untimely and unfounded
excuses.
Such excuses do nothing but harm to the salutary efforts of providing
the
underprivileged and the homeless with cheap but decent houses. It
is for this reason that we regard this case as no ordinary skirmish
over
contractual relations.cralaw

Rescission

In view of the foregoing
discussion, we rule that rescission of the Contract is the proper
recourse.
Article 1191 of the Civil
Code provides:chanrobles virtual law library

“Art.
1191.
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

“The injured party
may
choose between fulfillment and the rescission of the obligation, with
the
payment of damages in either case. He may also seek rescission
even
after he has chosen fulfillment, if the latter should become
impossible.”

As noted in previous
cases,
the rescission contemplated under Article 1191 is a principal action
for
“resolution,” which is based on a breach by a party of its reciprocal
obligations.[38]
The present Contract is one of conditional sale -- oftentimes referred
to as a contract to sell, wherein ownership or title is retained by the
vendor[39]
until “full payment by the VENDEE of the full purchase price of the
PROPERTY,
with all the interest due thereon, as well as taxes and other charges
AND
upon their faithful compliance with all the conditions of this Contract
x x x.”[40]

Although a transfer
of ownership or title from the seller to the buyer is normally
predicated
upon the payment of the purchase price, the parties are nevertheless
free
to stipulate other lawful conditions by which they bind themselves and
upon which transfer of ownership depends.[41]
In this case, that other obligation was faithful compliance with the
conditions
of the Contract. Respondent did not faithfully comply with the
conditions
under subparagraphs (10)(a) and (c). His noncompliance also
constituted
a breach of his reciprocal obligations under the Deed.chanrobles virtual law library

The Deed itself provides
for its annulment and cancellation by reason of a breach of the terms
and
conditions stipulated therein. Paragraphs 11 and 12 provide thus:chanrobles virtual law library

“11.
Should the VENDEE violate, refuse or fail to comply with any of the
terms
and conditions stipulated herein, for whatever reason, or is found to
have
committed any misrepresentation in his/her application for EMPLOYEE
HOUSING
LOAN, this Contract shall be deemed annulled and cancelled without
prejudice
of the rights of the parties under Republic Act No. 6652, otherwise
known
as the Maceda Law, and shall entitle the VENDOR to immediately
repossess
the property as if this Contract was never made; for this purpose, the
VENDEE shall be considered and treated as a tenant holding the property
without the permission of the VENDOR, and must peacefully vacate the
premises
immediately upon repossession thereof by the VENDOR. The
annulment
and cancellation of this Contract and the right of the VENDOR to
repossess
the property shall become effective upon mere written notice thereof to
the VENDEE.

“12. In
addition
to the consequences stated in the immediately preceding paragraph, the
VENDEE shall forfeit in favor of the VENDOR all the installments made,
to stand as rent for his/her occupation of the property, likewise
subject
to the provisions of Republic Act No. 6552.”[42]
(Italics supplied.)

However, this Court
holds
that the forfeiture provision under paragraph 12 does not apply to the
payment made by respondent. The plain and simple reason is that
he
did not pay the purchase price by installment, but instead paid it in
full
in December 1992 -- two months after the delivery of the unit.
Hence,
that payment wasbeyond the ambit of
Republic Act 6552, otherwise known as the Realty Installment Buyer Act
or the Maceda Law.chanrobles virtual law library

Doctrinally, mutual
restitution must follow rescission. Under Article 1385 of the
Civil
Code, “rescission creates the obligation to return the things which
were
the object of the contract, together with their fruits, and the price
with
its interests x x x.”[43]
Moreover, “to rescind is to declare a contract void at its inception
and
to put an end to it as though it never was.”[44]
Hence, rescission restores the parties to their relative positions, as
if no contract has been made. Paragraph 11, cited above, supports
the mutual restitution required in rescission.cralaw

Respondent is thus obliged
to return the house and lot sold, as well as rental payments he may
have
earned, if any. On the other hand, petitioner is mandated to
refund
to him his full payment of P172,978.85 plus legal interest of 6 percent
per annum, as well as the value of substantial improvements introduced
by him, as appraised by petitioner. Indeed, stipulated in the
Deed
is such appraisal by the vendor,[45]
upon transfer of the property to petitioner or to any of its eligible
employees.
This condition is reasonably and justly applicable and proper in the
present
case.cralaw

WHEREFORE, this Petition
is hereby GRANTED and the assailed Decision SET ASIDE. The Deed
of
Conditional Sale is CANCELLED. Petitioner is ORDERED to pay
respondent
P172,978.85, plus the legal interest and the value of any substantial
improvements
thereon. Respondent is ORDERED to vacate immediately Block 18,
Lot
8, SSS Housing, North Fairview, Quezon City; and to surrender
possession
thereof to petitioner. No costs.cralaw